Guide to Inventory Insurance with a 3PL

When it comes to protecting your eCommerce business, inventory insurance is often overlooked. Yet, your inventory is one of your most valuable assets and needs to be properly protected in case of loss or damage.

If you use a third-party logistics (3PL) provider, you will really want inventory insurance. Get a quote from various insurance providers who can help you obtain the right coverage for your inventory.

3PL Inventory Insurance

What is inventory insurance?

Inventory insurance is a type of business insurance that protects your inventory from loss or damage. It is also known as commercial property insurance, but inventory insurance is specifically for inventory.


What does it cover?

Small business inventory insurance can include coverage for theft, fire, floods, and other natural disasters.

What doesn't it cover?

If your inventory is lost or damaged due to negligence, whether by you, or your third-party logistics provider, your policy will not cover it.

Why do you need inventory insurance?

Your inventory is your most valuable asset as an eCommerce brand and needs to be properly protected. If something happens to your inventory, it can not only set you back financially but can lead to distrust and contempt from your customers for being out of stock for prolonged periods of time.


For example, if you lose inventory due to theft, you'll not only lose the value of the inventory itself, but you'll also lose the revenue from sales that would have been generated. And, when inventory is lost unexpectedly, you may not be able to restock in time to avoid a stockout. For brands living on a tight budget already, this can wreak havoc on your cash flow.



How much does inventory insurance cost?

You should reach out to a variety of insurance providers and receive quotes. Your policy will vary based on the type of goods you own, where they are stored, how much they cost, and how high you want your coverage to be. For example, storing $100,000 worth of computers would be more expensive than storing $5,000 worth of pencils.

What about 3PL insurance?

First, it is important to note, that your 3PL will never own your inventory. It is only in their care as a third party. While 3PLs do have their own third-party insurance, known as warehouse legal liability insurance, this insurance is only meant to cover their employee's negligence and facility issues. You are actually often required to maintain your own insurance on your inventory just to be protected by their insurance.


Because warehouseman's legal liability insurance does not cover natural disasters or similar, that is where your policy comes in. Additionally, you may want to take a look at your warehouse's shrinkage policy. Normally you will see some limitations of liability for how much of lost or damaged inventory the 3PL will cover.


Common shrinkage policies will be between 1-5%, with weight-based caps, such as $0.50/lb. Unless your contract explicitly states when the warehouse will be liable for shrinkage and how much it will cover, you may be on the hook if they lose your product and you can't prove it was due to their negligence.

How do I get 3PL insurance?

So, to clarify, there is no separate policy for 3PL insurance. If you would like to get insurance for your inventory, you would purchase a policy for inventory insurance or commercial property insurance and add your 3PL's location as an additional location insured.


Your insurance provider may require specific details about the facility your inventory will be stored in. This should be something you can ask your 3PL to provide and may include things such as the construction type of the building, the sprinkler systems, the age of the building and so on.


 

Looking for a 3PL That Won't Lose Your Inventory?



OTW Shipping offers fulfillment services for brands who need a 3PL they can trust to do the job right and be transparent with billing and communication.

  • Our services are designed to mimic in-house fulfillment. Whether you are a startup or a global brand, you will have direct access to our warehouse team who handle your product every day.

  • Our advanced software lets you see every item on your bill and integrates with all your selling platforms for a seamless fulfillment experience.

  • Our best-in-class SLAs back up our promise to ship your product out on time and accurately.